Brits rely on overdrafts instead of savings

Category:
Money

Updated:
04/03/2015
First Published:
04/03/2015

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If you find yourself running out of cash towards the end of the month, what do you do? For some, a savings pot will be the answer, but research has found that a worrying number of people turn to their overdraft instead.

Half do without a budget

The research, conducted by financial solutions company Baines & Ernst, found that more than half (56%) of those surveyed don't have a monthly budget that they stick to, and that could mean they find it difficult to make their income last the month. Even more worrying is the fact that 17% admitted they didn't have any savings at all – leaving them without a financial buffer to fall back on – while 10% confessed to relying on their overdraft every month.

Debt to savings ratio

The survey also found that, even though a third of respondents have between £1,000 and £6,000 in savings, one in seven have debt that equates to between £1,000 and £10,000. A further one in 14 have current debts of over £10,000, with those in the 35-44 age group suffering the most.

Despite this posing clear problems to those hoping to take control of their finances, a number of people choose to avoid or ignore their financial problems altogether, with 12% of 18-24 year-olds not even checking their bank account. The growing reliance on overdrafts has led to fears that many people could become too comfortable with their debt, as many are unable to turn to savings to cover any shortfalls in income.

Shaz Sulaman, of Baines and Ernst, commented: "As the cost of living continues to rise, an alarming number of people are turning to additional forms of credit to pay for everyday essentials. While this can be a short-term solution for those who desperately need additional funds, the long-terms effects can be much harder to deal with if the amount borrowed cannot be repaid on time. Debts can easily spiral out of control and can lead to bigger financial problems that become much harder to manage.

"The most effective way to stay on top of your finances is to budget. It is a simple solution that can really help you maintain control of your money. Go through your finances thoroughly – creating a full income and expenditure overview of your household budget. Once you have this you will be able to recognise areas where you can streamline your finances and set realistic budgets. You could even identify ways to cut spending and save money."

Put those savings to good use

Budgeting is the only real solution if you want to ensure you're not dipping into your overdraft, and you could even save a bit of money as a result. So why not put that unexpected windfall to good use?

At the end of the month, consider putting any money left over in a savings account, preferably an easy access version that doesn't penalise you for withdrawals, and you can start building up an emergency fund. Then, if you find you're running out of cash in future months, you've got a financial reserve you can fall back on! It can be a great safety net that can offer valuable peace of mind, and hopefully, it'll mean you won't need to rely on your overdraft quite so much.

How many have better budgeting as their New Year’s resolution? As with many things, these skills are best learned when young, so Lemonade Money has come up with some tips to help parents make their children more financially savvy.

Money worries are putting Christmas at risk for up to five million Brits, with 10% saying they regularly worry about money in the lead up to Christmas, and the same proportion feeling stressed about how much they are spending.